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Mimi Company is considering a capital investment of $275,000 in new equipment. The equipment is expected to have a 5 -year useful life with no
Mimi Company is considering a capital investment of $275,000 in new equipment. The equipment is expected to have a 5 -year useful life with no salvage value. Depreciation is computed by the straight-line method. During the life of the investment, annual net income and cash flows are expected to be $25,000 and $80,000, respectively. Mimi's minimum required rate of return is 10%. The present value of 1 for 5 periods at 10% is .621 and the present value of an annuity of 1 for 5 periods at 10% is 3.791 . Instructions (40 points) Compute each of the following: (a) Cash payback period. (b) Net present value. (c) Annual rate of return. (d) Should the company make the investment? If so, why? If not, why? Mimi Company is considering a capital investment of $275,000 in new equipment. The equipment is expected to have a 5 -year useful life with no salvage value. Depreciation is computed by the straight-line method. During the life of the investment, annual net income and cash flows are expected to be $25,000 and $80,000, respectively. Mimi's minimum required rate of return is 10%. The present value of 1 for 5 periods at 10% is .621 and the present value of an annuity of 1 for 5 periods at 10% is 3.791 . Instructions (40 points) Compute each of the following: (a) Cash payback period. (b) Net present value. (c) Annual rate of return. (d) Should the company make the investment? If so, why? If not, why
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